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2008 401K Limits

If you're sick of hunting around for 2008 401K Limits info, you've found the right site! This webpage is full of advice and explanations on how 401k's work plus there are all kinds of tips, tricks and questions asked most often you can go over and hopefully learn from. We hope you find this page to be helpful and informative for you! Finding the correct retirement program can be tough if you don't have all the facts, so we've set this page up with as much 401 k information as we could get for you and made sure it's fast, easy and helpful to you. Here you go...

What is a 401(k)?

A 401(k) is a type of retirement plan that allows employees to save and invest for their own retirement. Through a 401(k), you can authorize your employer to deduct a certain amount of money from your paycheck before taxes are calculated, and to invest it in the 401(k) plan. Your money is invested in investment options that you choose from the ones offered through your company's plan. The federal government established the 401(k) in 1981 with special tax advantages, to encourage people to prepare for retirement. They get their catchy name from the section of the Internal Revenue Code which established them (you guessed it, section 401(k)).

2008 401K Limits Tips:

Note that 401(k) distributions are separate from pension funds. Like IRAs, participants in 401(k) plans must begin taking distributions by age 70 1/2. Also, the IRS imposes a minimum annual distribution on 401(k)s at age 70 1/2, just to guarantee that Uncle Sam gets his share. However, there's an exception to the minimum and required distribution rules: if you continue to work at that same company and the 401(k) is still there, you do not have to start withdrawing the 401(k).

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Important 401(k) Rules:

401k Rules Regarding Contribution:

* In 2005, the cap for individual contribution was $14,000.This number increased to $15,000 in 2006, and after 2006, the cap adjusts annually in $500 increments.
* The maximum total amount contributed to your 401k plan is the lesser of 100% compensation or $42,000.
* If you’ll be age 50 or older by the end of the year, you may make an additional “catch-up”contribution each year. The maximum “catch-up”contribution was $4,000 in 2005 and $5,000 in 2006 and goes up each year.
* For highly compensated employees (those with income in excess of $95,000 in 2005), they may not be allowed to contribute at the maximum rate in the company.
* You can only contribute money to your 401k plan by automatic payroll deduction.
* You may not get your employer’s match if you leave your employer in less than three years. However, more and more companies have began offering immediate vesting to their employees

401k Rules Regarding Loans:
Not all 401k plans allow you to borrow from your 401k plan. And if it is allowed, the most you can borrow is the lesser of 50% of your vested balance or $50,000.

* You have to repay your loan in 5 years, unless the loan isused to purchase your primary residence.
* The interest you pay on your loan is subject to double taxation---you pay the interest with after-tax money and it is subjected to taxes when you eventually withdraw it.
* When you leave your company, you may have to pay back the outstanding balance in full. Otherwise, the outstanding amount will be subject to a possible 10% early withdrawal penalty.
* If you default on your loan, the outstanding balance is also subject to a possible 10% early withdrawal penalty.

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Reasons why 401ks are a smart idea:

There are many advantages to saving for retirement through your workplace retirement savings plan, including a potential match from your company, as well as professional management of your investments. The best reason to save in your plan is plain and simple: it's up to you to save and invest for your own future.

Here are seven more reasons:

* You can increase your take home pay, really
* A company match can help your investments grow
* Automatic payroll deduction makes it easy to save
* Most of your plan's investment choices are managed by professionals
* Most plans allow access to your contributions in an emergency
* Account services keep you informed
* Your money can go with you, job to job

**Disclaimer** The information on this page is as accurate as we could get it but is meant for information purpose only. It's not meant to be legal advice in which you use to make financial decisions. For any legal or financial matters, you should seek out a certified 401k or investment company or individual.

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